Fed Goes Slow, Gold Price Goes Up
Gold is set to advance by as much as 15% before the end of Y 2017 as the Fed goes slow on increasing interest rates and the USD remains subdued, buoying bullion demand, according to Templeton Emerging Markets Group.
“The Fed is going to increase the rates by a little bit but not excessively and there is no guarantee that a rise in interest rates will put people off,” Executive Chairman Mark Mobius said in an interview. “A lot will depend on the real rates.”
Bullion has rallied 19% in Y 2016 as concern over the health of the global economy, loose monetary policies and the UK’s vote to leave the EU fanned demand.
After raising rates last December for the 1st time in almost a decade, Fed policy makers have stood pat on borrowing costs in the 6 meetings since, after saying they would raise rates at least 4X this year. While the Buck gained to the highest since March Monday on speculation that rates may soon climb, it remains lower this year.
“The US dollar is not that strong and may even decline,” said Mr. Mobius, who highlighted prospects for increased central bank buying of Gold. “So if that happens, Gold gets more expensive.”
Gold for immediate delivery traded lat 1,265.30 at the close Monday in New York, after rising last week. It rose to 1,375.34 in July after the aftermath of the Brexit vote in the UK the highest since March 2014, it has since been consolidating those gains.
While Fed funds futures show the odds of a rise in December have risen, investors are still plowing funds into Gold-backed ETFs (exchange-traded funds), with holdings at the highest in more than three years last week. The probability of a December hike is about 68%, from 59% at the start of this month.
Mr. Mobius’s forecast for a higher Gold price in Y 2017 even as the Fed proceeds to raise rates is similar to the outlook from participants at last week’s London Bullion Market Association conference in Singapore.
Federal Reserve Bank of San Francisco President John Williams said Friday he’d support one increase in Y 2016 and a few more next year.
The FOMC next meet on 1-2 November, the week before the US Presidential election, and again in mid-December. John Williams, who doesn’t vote on policy this year also said he would have supported a September increase in a familiar Jawboning exercise.
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